Let's walk through a set of related CVP analysis problems together to help us get ready for exam time. Just pick one part of the overall question, explain your solution approach and show us your work. Lots of people can contribute sequentially to each part of the overall question, and as always, don't worry if you get something wrong. If you explain what you've done and get it wrong, you'll still get credit for contributing to the discussion...we'll follow up and make sure we get it correct with subsequent postings. Here's the info for our example multipart problem:
Jason Timberwolf owns and operates Timberwolf Industries, a firm that makes very cheap, discounted bowling balls. Here's the essential information on this production operation, and keep in mind that when we use the term "unit" we're referring to each bowling ball produced by Timberwolf:
Sale price per unit $10
Variable costs per unit:
Direct Materials $1
Direct Labor $2
Variable portion of Mfg OH $3
Total variable cost per unit $6
b) How much in annual sales dollars (sales revenue) will the company need to sell in order to make a profit of $5 million?